ASIC between a rock and a hard place with Moylan

If a tree falls in the forest and no one hears it, does it make a sound? (Pictured, Jonathan Moylan.)
Photo: Rob Homer

by
Marcus Priest

The sentencing of American university student and environmentalist
Tim DeChristopher
in 2011 to two years’ jail time was dubbed a Rosa Parks moment – a reference to the woman who sparked the black civil rights movement ­in 1955.

Outside the Utah courthouse where DeChristopher was being sentenced, about 100 protesters sang
Bob Dylan
’s The Times are A-Changing. DeChristopher attracted some high-profile supporters – including actress Darryl Hannah and film-maker Mike Moore – and claims he was being singled out for special attention by the government, while corporate criminals went unpunished.

“When a corrupted government is no longer willing to uphold the rule of law, I advocate that citizens step up to the responsibility," DeChristopher told the court moments before sentencing.

Those scenes had more than a faint echo last week when university student and environmentalist
Jonathan Moylan
appeared in a Sydney court after putting out a fake press release claiming
ANZ
had withdrawn finance for the proposed Maules Creek coalmine in NSW.

DeChristopher crashed a federal auction of oil and gas leases in Utah and placed false bids on more than 7300 hectares of land before being sprung. He unsuccessfully argued he faced a choice between two evils – breaking the law or allowing dangerous climate change.

“When faced with the opportunity to seriously disrupt the auction of our most beautiful lands in Utah to oil and gas developers, I could not ethically turn my back on that opportunity," said DeChristopher before the trial.

“Accepting the true depth of the climate crisis is extremely scary, but the purpose of fear is to motivate us."

Beliefs ‘no excuse’

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But Judge Dee Benson said DeChristopher’s political beliefs did not excuse his actions.

Like DeChristopher, Moylan faces fraud charges – in the Australian’s case, under section 1041E of the Corporations Act – putting out a false or misleading statement that was likely to induce persons to dispose of or acquire shares.

And, as is becoming increasingly apparent, Moylan, like DeChristopher, will turn his case into a show trial to attract public attention to the impacts of large-scale fossil fuel extraction on climate change.

“The potential consequence is complete disruption to the global climate if we keep expanding the coal industry," said Moylan this week on ABC radio.

However, there is one material difference between Moylan and DeChristopher. The potential consequences of Moylan’s act are much broader than DeChristopher’s. Unlike previous acts of civil disobedience by the environment movement, the potential consequences of false market statements are felt much more widely by investors.

In the Moylan case, Citigroup sold net $507,317 of Whitehaven shares and UBS sold net $436,3334 shares as their value plunged by nearly 10 per cent.

As explained by Professor Michael Adams, a properly informed market is a key element to its proper functioning. It has the potential to affect investors more generally, including the millions of superannuation members with funds invested in Australian shares.

“A protest normally provides publicity for a cause and brings the matter to the general public’s attention, but causes little harm to the community," wrote Adams in The Conversation.

“A fraud – and in particular one that impacts on the share market – has huge consequences. Markets operate on a concept of efficient market hypothesis: that is, all available pubic information is calculated into the current share price."

Targeting the small fry

It is against this backdrop that the Australian Securities and Investment Commission brought charges against Moylan under section 1041E. But it has attracted claims, like in the DeChristopher case, that ASIC is targeting the small fry and letting the big fish walk. Moylan claims to be the first person to be charged under section 1041E.

James Hardie
directors were prosecuted under the same section, and its predecessor, over a misleading 2001 press release that its asbestos compensation fund was “fully funded". Charges were also brought against the company’s directors under the predecessor of section 1041E, section 999.

As the decisions in the Hardie case demonstrate, the test is simply whether an ASX release is misleading.

Since Moylan was charged some of his supporters have highlighted overseas cases where environmental activists like the Yes Men and Youth for Climate Truth have successfully fought off lawsuits brought against them arising from protests involving false pretences. But, unlike the Moylan and DeChristopher cases, those cases were privately brought by the companies involved and alleged trademark infringement.

For that reason, the decisions by the NSW Supreme Court and Court of Appeal in relation to the James Hardie directors provide real guidance as to how Moylan may go it he chooses to defend the case.

For example, some of Moylan’s supporters have claimed his press release was so obviously fake that it was not reasonable for investors and this paper to take it seriously. Nor was it his intention to profit from his actions – as is usually the case when such charges are laid.

It is not how informed market analysts would view it, but rather all investors – sophisticated and unsophisticated.

Careful tone

For this reason, the fact that keen market observers know ANZ does not put out ASX releases detailing its financial dealings with individual clients may not help Moylan.

The careful tone and appearance of the release – mirroring real ANZ statements – along with Moylan’s attempt to imitate a bank employee when contacted will work against him.

According to Justice Ian Gzell the test is not whether investors were actually misled, but objectively whether – in the circumstances at the time of the statement – they were likely to be mislead. Further, it may only be one of a number of factors inducing someone to buy or sell shares.

“What is required is that the impugned statement or information has a real and not remote chance of inducing persons to take the various steps," Gzell said.

“The purpose of the provision is to prevent market manipulation. It would thwart that purpose if the statement or information in question had to be the sole inducement."

Even so, this is unlikely to dampen criticism of ASIC for bringing the charges in the first place. But in such a high-profile case, ASIC would equally face criticism if it failed to act in what appears to be a fairly clear-cut matter.

Further, from Moylan’s point of view, if a tree falls in the forest and no one hears it, does it make a sound?

In DeChristopher’s case, while he was jailed, the attendant publicity resulted in the incoming Obama administration cancelling the sale of the oil and gas leases.